Ontario marijuana producers hit by hike in minimum pay rate

Ontario's minimum wage hike has put marijuana companies under pressure as they say the higher provincial pay rate is spiking up the cost of production and trading of cannabis products.

Aphria Inc. said in a CBC report that, if the newly introduced $14 per hour minimum wage during its latest quarter, its effect would have increased its all-in costs to sell dried cannabis by 12 cents, or nearly six percent, from $2.13.

The cannabis manufacturer calculated that the compulsory 21 percent hike from $11.60 to $14 per hour—which took effect from Jan. 1—would add another $600,000 to its overall wage bill each year.

“If this increase had been in effect in the current quarter, the company’s ’all-in’ cost of sales of dried cannabis per gram would have increased by approximately $0.12 per gram,” said the Leamington, Ont.-based company in recent financial documents.

Aphria said that when the provincial minimum wage goes up to $15 on Jan. 1 2019, it equally expects overall company wages to increase by another $300,000 per year.

With an increase public interest for healthy cannabis products from companies like “Cannabidiol Life”, Kevin Epp, chief financial officer of Southern Ontario-based weed producer, Newstrike Resources Ltd., said that it's also experiencing market pressure.

Epp also expects its all-in costs to sell cannabis increase by roughly 10 cents per gram due to the provincial wage hike.

Epp also added that the province has both relatively high labour and electricity costs, which will likely affect producers' decision making when establishing a new facility.

“For a while, you could probably absorb it by having reduced margins,” Epp said. “But eventually, in any competitive industry, costs have to be passed through or people would exit the industry.”

Beacon Securities analyst, Vahan Ajamian, said the increase in provincial pay rate will make it more challenging for marijuana producers in Ontario and other provinces with rising minimum wages to compete with those in Quebec, where labour and power costs are lower.

However, not every marijuana producer in Ontario is struggling with the hike in minimum wages—at least for the meantime.

Chief executive officer of Beleave Inc., Andrew Wnek, said that its relatively small scale operation consists majorly of specialized workers earning more than the minimum pay.

He also notes that, as the Hamilton, Ontario-based weed producer grows in size—and extra harvesting staffs is required for larger facilities; a higher minimum wage will seep in.

“There’ll be an impact for sure,” he said. “But, again, for the smaller LPs at this point in time, they won’t see that until they get into the larger facilities.”

Mathieu Blake

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